The Final Take Home Exam

The Final Take Home Exam

The Posh Hairdo Salon Case

Business Overview

Services

Patty Pompadour’s Posh Hairdo Salon provides a variety of hair services and sells related hair and skin products. The salon provides the following types of services: cutting, styling, permanents, coloring, highlighting, color stripping, corrective color, deep conditioning treatments, protein treatments, special treatments, and scalp therapy treatments.

Personnel

Ms. Pompadour has approximately 15 stylists who are paid on a base salary plus commission (based on gross service and retail sales) basis. Ms. Pompadour also employs a full-time receptionist/salon manager, Ms. Perkins, who answers the telephone, handles appointment scheduling, organizes special/large scale salon events, greets clients, and does inventory ordering; Ms. Perkins is paid on a straight salary basis. Ms. Pompadour also retains a part-time bookkeeper, Mr. Tibbs, who comes in periodically to help with the basic accounting and is paid on an hourly basis.

Inventory

The salon maintains a substantial amount of service-related inventory (i.e. styling products, shampoos and conditioners, products for hair, scalp, and skin treatments, as well as chemicals for coloring, bleaching, and permanents). The salon also maintains a relatively large amount of inventory consisting of a full line of hair and skin products for retail sale. Both the retail and service-related inventory are purchased on account from several different beauty-supply stores most of which offer lower prices online and significant cash discounts when accounts are paid within a stipulated period of time. Finally, the salon maintains a number of fixed assets such as large seated hair dryers, color processing light/heat lamps, a washer/dryer for towels and smocks, various pieces of workstation and waiting area furniture, and a water cooler.

Costing, Pricing, and Payment Methods

Costs are assigned to services performed based on the stylist time, products or chemicals used, and an allocated portion of indirect costs. Pricing is based on the individual services provided to a particular client (e.g., haircut, shampoo, and style) and extent of the services (e.g., trimming bangs is discounted from the full haircut price and men’s haircuts are priced differently from women’s haircuts). Most services and retail products are paid for by cash, check, or credit card when services are rendered or products purchased. However, receivables may occur for large scale, special salon services/events such as wedding parties, beauty pageants, or photo shoots for fashion magazines or commercials.

Business Processes and Transaction Processing

Sales invoices are written and totaled manually by individual stylists. Payments are submitted to and recorded by Ms. Perkins after services have been rendered. Ms. Perkins makes client appointments and keeps track of scheduling for each stylist by hand using a traditional salon-scheduling book that resembles a huge appointment calendar. Ms. Pompadour and Ms. Perkins keep track of scheduling for larger special services/events in a separate schedule book and prepare billing invoices by hand on salon letterhead.

Shelf counts of retail inventory and requests for service-related products by individual stylists determine purchases of inventory. Ms. Pompadour or Ms. Perkins usually reviews retail inventory stocks and service-related inventory levels before orders are placed. Ms. Perkins places orders over the phone or during regular visits to the beauty-supply stores. Sales and purchases transactions, receivables billing, and payroll are all processed and maintained manually by Ms. Pompadour and her part-time accountant, Mr. Tibbs, using a very simple set of account books. Client records consisting of contact information, personal information (such as birth dates and the names of spouses, children and pets), typical services rendered, and the products needed for the services are maintained by individual stylists in a simple central card filing system resembling two large recipe boxes.

Recent Problems

Over the last year, the number of stylists, different services provided, retail products sold, and clients serviced have almost tripled. As a consequence, Ms. Pompadour and Mr. Tibbs have found it increasingly difficult to maintain the salon’s books manually. Some sales have not been recorded, invoices and client records have been misplaced, payroll and payroll taxes have been miscalculated, payroll checks have been prepared incorrectly, and cash discounts have been lost. The preparation of tax returns and financial statements has become a virtual nightmare. Billing for special event services has not been handled in a timely manner and, in a couple of instances due to such delays, payment was not received for almost a year after the actual services had been performed.

Because inventory records are not being maintained on a perpetual basis, retail stock outs have occurred and, in a couple of cases, clients have arrived for appointments and had to re-schedule because the salon did not have the necessary service-related products. Moreover, service cost estimates (especially those for special/large scale events or jobs) and pricing have not been reviewed and updated for sometime so profit analyses are, more likely than not, inaccurate.

Ms. Pompadour exclaimed during a recent bookkeeping session with Mr. Tibbs, “I do not know what I have, what I don’t have, or what I am making! If I don’t get things under control soon, especially before I open the new salon location, I’m going to loose my shirt and my shorts.” Mr. Tibbs suggested (for about the thirtieth time) that she needs to computerize the salon’s accounting records; he argued “The business has grown so rapidly over the last year that Word and Excel are simply not enough any more. You need to consider an integrated accounting application, especially considering the impending addition of a new salon.”

Ms. Pompadour’s Plans

Ms. Pompadour has no practical accounting background and is quite intimidated by the prospect of setting up an accounting information system. She has systematically avoided computerized accounting software in the past because she believes she lacks the necessary accounting and technical knowledge to understand and maintain the system. Nevertheless, she is determined to get things under control and is planning to purchase and implement an accounting software package as soon as possible. Ms. Pompadour has remarked, “If I am going to do this, I am going to do it all of the way.”

Although Ms. Pompadour and Mr. Tibbs currently maintain the books manually, Ms. Pompadour recently purchased a Dell laptop (Pentium IV 1GHz, 256 MB RAM, 100 GB hard drive, with Windows 2000 Professional, 24x CD-ROM, internal modem, and network adapter) and has already installed Microsoft Office Professional 2000 so that she can use Microsoft Word and Microsoft Excel to prepare billing invoices, and basic accounting reports. She is planning to purchase two desktop computers (one up front for the receptionist and one in back for the stylists) and a HP LaserJet printer for the salon and would eventually like to computerize the salon’s appointment scheduling and client records. She would also like to network her laptop and the salon’s desktops together so that stylists can share appointment schedules, client records, and peripherals such as the printer. However, access to inventory data would be restricted to the receptionist/manager (who handles ordering) and herself. Moreover, Ms. Pompadour and Mr. Tibbs would be the only people able to access Sensitive accounting data such as employee payroll data.

Additionally, Ms. Pompadour is looking into the possibility of online banking, business-to-business (B2B) commerce with her beauty supply warehouses, the development of a web site for the salon (with informational, business-to-consumer (B2C) retail sales, and appointment scheduling capabilities), and providing email services for her employees. Ms. Pompadour would also like to explore the possibility of developing a customer relationship management system (CRM) and/or a relational database management system (RDBMS) to track the following information:

· client information (name, address, telephone numbers, credit information, typical services purchased, products/chemicals needed for typical services, retail items purchased, and miscellaneous personal information).

· salon services information (client name, date of service, services provided)

· service inventory (products used, for what service used, the date used, for what client the products were used.)

· retail inventory (products sold, to what clients they were sold, the date and quantity sold,).

Mr. Tibbs expressed a concern that Ms. Pompadour maybe trying to do too much too fast. “What we need now is a good solid integrated accounting application; however, I do not discount the advantages of the e-business and database technologies you have mentioned. If you want to incorporate these technologies into the business, you definitely need to consider compatibility with your accounting system solution. Unfortunately, e-business applications and database management systems are well beyond my technical expertise.” Consequently, Mr. Tibbs has suggested that Ms. Pompadour contact a local accounting firm for a recommendation.

Your Consultant Role

Ms. Pompadour has retained you, an accountant working for a local firm to evaluate and choose an accounting software solution for the salon. After some initial screening research based on, in part, interviews with Ms. Pompadour and Mr. Tibbs and informal discussions with your colleagues, you must recommend one of two traditional accounting software packages for use in the salon.

III. REQUIREMENTS

In order to help you with the issues raised by this engagement, review the following articles published in the professional literature: Collins (1999a, 1999b, 1999c) and Honig (1999). (Full citations for these articles have been provided in the references.)

After reviewing Ms. Pompadour’s business operations, needs, and plans as well as the suggested journal articles, provide a written report to Ms. Pompadour that contains the following three sections. Your written report should be professionally presented, be no more than six pages including the cover page (containing the assignment designation, your name, date, and class section) and must be typed in proper format (with one-inch margins, 12-point font, double-spacing, pagination, and footers containing your name and the assignment title) on clean white paper. Note that this is a professional research writing assignment and, as such, writing should follow prose form, flow logically, express your ideas succinctly, communicate your points clearly, and follow proper English spelling, grammar, sentence structure, and punctuation. Proof read, grammar check, and spell check your work before you turn it in.

Section One: Needs/Requirements Analysis

Based on the narrative above, prepare a needs/requirements analysis for Ms. Pompadour and the Posh Hairdo Salon. When constructing your discussion, make sure to address the current and potential future needs of the salon. First, discuss the business processes and transaction processing activities used by the salon (be explicit). Second, discuss what accounting and system functions are needed for Ms. Pompadour to organize and gain control over the financial and information system aspects of the salon (again, be explicit). Finally, address, as part of your analysis, whether or not you think Mr. Tibbs’ concern (that Ms. Pompadour’s future plans for e-business and database technologies may be too bold) is valid; justify your conclusion.

Section Two: Software Application Evaluation

Research and assess the appropriateness of one out of two accounting software packages for use at The Posh Hairdo Salon. Base your ultimate evaluation on your critical appraisal of each application’s ability to satisfy current and planned future system needs as identified in your requirements analysis above. Your evaluation should include, but not necessarily be limited to considerations of:

· cost

· ease of startup

· ease of use/user friendliness

· vendor reliability and stability

· customer support and guidance available (product, technical, and training related support)

· relevant accounting functions and system features

· report capability

· data security issues

· multi-user capabilities and network readiness

· flexibility to customize the accounting package to needs of the salon

· compatibility with existing system specifications and applications

Section Three: The Recommendation

Prepare a memo (directed to Ms. Pompadour) recommending one software application or ASP for use in the Posh Hairdo Salon. Make sure to adequately justify your recommendation with respect to the salon’s current and potential future requirements.

References:

Collins, J. C. 1999a. How to select the right accounting software: A process for evaluating the best packages for your organization. Journal of Accountancy (August) 61-69.

Collins, J. C. 1999b. How to select the right accounting software: How the underlying database influences price and effectiveness. Journal of Accountancy (September) 31-38.

Collins, J. C. 1999c. How to select the right accounting software: Handling the web and international commerce. Journal of Accountancy (October) 67-77.

Honig, S. A. 1999. The changing landscape of computerized accounting systems. The CPA Journal (May) 14-87.

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